Wednesday, September 23, 2009

It seems that everyone in the Federal Government wants us to buy a house. Politicians, when running for election, speak of the "American Dream of Home Ownership" as if were the holy grail or the ne plus ultra of living.

The tax code has been skewed to encourage home ownership, both for individuals and for investors. If you make any amount of money at all, it seems the best thing to do, tax-wise, can be to buy a house. And financial advisers are quick to make that recommendation. But remember, as I have stated in the past, you can't deduct your way to wealth. Even the $8000 first time home buyer tax credit is no bargain, if the house ends up being a financial nightmare.

Home ownership is not for everyone, nor should it be. And whether or not you should own a home or even "dream" of home ownership depends a lot on your life circumstances and individuality. For many people, renting a home is a perfectly acceptable alternative and even a superior economic one. The Government would do better to get out of the home-selling business and let people make their own economic decisions without tax incentives.

In the wake of the Real Estate meltdown, many people are struggling to rebuild their finances, after getting sucked into the investment market or after jumping on the home ownership bandwagon, too late in the game. They are asking themselves why and how this "dream" became such a nightmare. Often these were the most unsophisticated investors or home buyers who were encouraged by this "dream of home ownership" talk or the promise of quick profits to invest in a market that was incredibly overheated.

Is Home Ownership right for you? Let's explore the history of home ownership and whether or not it is best for your circumstances.

Owning a home is no big deal, really. After owning several, both as personal residences and as investment properties, I can say that it is no "dream" at all, jut a series of obligations and maintenance chores. If you have never owned a home or never owned investment properties, it may seem exotic and desirable. But like a high-performance car, once you own one, it is just, well, a CAR, and a rather expensive one at that. Sometimes, most times, wanting is better than having.

And as others have pointed out, owning a home really means only that you eliminate one landlord. All Real Estate in the US is taxed by local authorities. So if you "own" a home, you still have to pay "rent" to your local Government landlord. Don't believe me? Stop paying your taxes and find out how quickly you'll be evicted from the home you thought you "owned".

If you go back a few decades, you'll find the idea of home ownership as being the "American Dream" was laughable. The "American Dream" was to become successful and make money, not buy a place to live. Before the Great Depression, home mortgages were nearly non-existent for most buyers. For those who were able to get them, the terms were pretty onerous. The term for repayment was often less than 10 years.

As I have noted in other articles concerning "funny money" such as Student Loans, once you make more credit available a funny thing happens - prices go up. In the late 1930's new home loans, guaranteed by the Government became available, with terms up to 15 years or more. Suddenly, owning a home seemed like a possibility to more and more people.

And since you could borrow for longer periods of time, you could buy larger and fancier homes. Back then, most homes had one bathroom. By the 1960's the idea of two, three, or even four bathrooms became quite normal for many middle-class families. So as more money became available, prices went up and houses got larger. But the monthly payment, in terms of percentage of income, remained about the same. Suddenly, the home became this huge investment, rather than just a place to live.

After World War II, mortgages were extended to 20 and then 30 years, and down payment requirements loosened. Not surprisingly, a housing shortage started, as returning GI's wanted to buy houses with this new funny money. Developers scrambled to build suburban tracts, while traditional city dwellings (often rental apartments) devolved into slums. You could take a suburban farm, chop it up into tiny little lots, put cheap houses on them and double or triple your money in a matter of months. Raw land was cheap, but packaged home units could be sold to individuals at relatively high prices because mortgage money was available.

Interest was deductible from your taxes, so having a mortgage or other debt was, in some respects, a bonus, as you could deduct the interest from your income and not pay taxes on it. Buying things "on time" flourished. Home ownership increased dramatically, but for a large segment of the population, mostly the poor, renting was the norm. Down payment requirements were still fairly hefty, and as a result, most poor people could not afford to buy houses.

The very rich tended to rent as well. Downtown luxury apartments were rented to wealthy tenants - the idea of the "condominium" had yet to catch on in a big way.

In the early 1980's, however, the tax deduction for non-mortgage interest was eliminated. Overnight, credit card interest, car loan interest and consumer debt interest was no longer deductible. It took a number of years before the market figured out how to deal with this new landscape. At first, people merely took it in stride, deducting only the interest on their homes and then biting the bullet on other credit.

But by the early 1990's, as interest rates fell and credit became more readily available, something new happened - the home equity loan. People started using their homes as a source of credit. A home equity loan, "secured" by the equity on the house, could be used to purchase a car or other item, or used to pay off other consumer credit. Of course, the IRS rules limited home interest deductions to only to debt for the purchase price of the home. At first, this limited deductions to those who had paid down the balance on their home. But since the IRS did not have the manpower to check everyone's mortgage balance and purchase price, many homeowners took the deduction, sometimes unknowingly or encouraged by their lender.

At the same time, requirements for some mortgages became increasingly lax, including down payment requirements and documentation requirements. In addition, frightening new financial instruments were created to allow people to buy homes with nothing down and make low payments - at least for a limited time.

So the funny money faucet was turned on FULL, and we had Real Estate bubbles. First in 1989 and then again in 2009. Twenty years apart almost to the day. No one ever seems to learn.

Like in any bubble, the people who jumped at these bad bargains, right before the bubble burst, were the least educated. They saw all their friends buying houses and making money and decided to wait, their instincts telling them that something wasn't right (always listen to your instincts). But eventually, something in them snapped, and too late, they decided to "jump on the bandwagon" and buy, only to have it all go horribly wrong. This pattern is not atypical. Often the most conservative investors end up getting fleeced as they succumb finally to a moment of madness after years of stingy living.

For investors, the tax code provided similar inducements to invest. For an investment property, you can depreciate the property every year on your taxes. For many people, this seems confusing, as Real Estate generally appreciates in value. But what the term means is that you take about 10% of the cost of the property off your income every year when figuring your taxes. If you can get past the meaningless term "depreciation" it is not hard to figure out (just as understanding entropy and enthalpy is really easy once you stop trying to understand them and just figure out how the equations work).

So, if I buy a $100,000 condo, every year, I can deduct $10,000 from my income, which saves me about $3500 in taxes every year. The exact numbers are different of course (consult a tax counselor for details) but you get the main idea. Buy a few investment properties, and pretty soon your tax bill is dropping in half.

When I started buying investment properties, I used the "old school" method of mathematics. I figured that the rental income should pay for the mortgage and all expenses and hopefully leave a dollar or two left over. The Depreciation Deduction was a bonus, in my figuring, and then the appreciation of the property a long-term investment goal.

When the market went nuts, new investors entered. They figured in the tax deduction as part of the break-even picture. Or worse yet, they took on deals with negative cash flows, on the theory that the overall appreciation in the property would dwarf the monthly negative drain. And of course, we all know now how that worked out for them. By the time the madness had started, I sold out, thankfully.

So where does that leave us today? Well, back where we started. Real Estate is going back to its roots as a rather mundane "investment" that is not for everyone. When I started buying Real Estate, the philosophy was very conservative. I would read Real Estate columns such as "Ask Bob" in the Washington Post, or House Calls by Edith Lank (http://www.arcamax.com/edithlank). These writers reflected the common sense of the era, common sense that should be applied today. I have boiled down this common-sense advice to five simple Rules.

1. It takes 5 years or more for appreciation in Real Estate to exceed the transaction costs in buying or selling, so if you plan on staying anywhere for less than five years, rent.

2. You should put down 10% or preferably 20% as a down payment to secure the best interest rates, avoid mortgage insurance, and insure you are not "upside down" on a loan, should the market go down. You should always seek out a fixed-rate mortgage at the lowest possible rates, even though it requires more documentation and is harder to get.

3. Never buy a house that is beyond your means. A buyer with mortgage payments exceeding 33% of their income is considered "stressed".

4. When buying investment properties, the cash income from rentals should equal or exceed the cash outlay in mortgage, taxes, insurance and repairs. Assume a 10% vacancy rate.

5. A home is nothing more than a series of components that wear out over time. Each lasts approximately 15 years or so. Budget for repairs of these components and avoid the temptation to replace perfectly good parts to "update" a home when more mundane things will wear out first.

If you play by rules like these, you will likely never get burned in Real Estate. However, Rules like these often mean you can't afford to buy a home or investment property at all - or that you can't afford that "dream home" mini-mansion.

So, is home buying right for you? Let's apply these five Rules and see how they work.

1. It takes 5 years or more for appreciation in Real Estate to exceed the transaction costs in buying or selling, so if you plan on staying anywhere for less than five years, rent.

Karl Marx once said that land or home ownership was a bad idea, as it tied workers to the land, preventing mobility of the workforce. Everything else Karl Marx said was a load of hogwash, but the was onto something with that comment.

We see today in many impoverished places like Flint, Michigan, or Central New York, that people are clinging to these areas, hoping that "the jobs come back". In many cases, they are invested in the area, literally, through home ownership. They cannot leave the area without walking away from their modest investment (losing it entirely or making very little). So they stay, hanging on to what little they have, rather than migrating to where there is work and money to be had.

Mobility is a very useful thing, and if you are tied to a house or location, you often have to pass on opportunities that involve mobility. I remember being offered a job in Japan once, only to turn it down, as I felt I could not give up my house and garden and other "things" that tied me to Virginia at the time. It probably was the right decision for other reasons, but mobility should not have been a consideration.

If you are working at a job, consider your future there. If you are working for a government agency and plan on staying there 10 years or more, then owning a home might make sense. But if you plan on changing jobs or transferring, then it may not. In a normal Real Estate market, it takes 5 years or more to recoup your transactional costs just to break even.

When you buy a house, you have to pay closing costs, points and other transaction fees. When you sell, you have to pay a 6% real estate agent fees as well as other closing fees. Combined, these fees can amount to nearly 10% of the sales price. In a normal Real Estate market, where home prices appreciate 2% a year, it may take 5 years or more to "break even" on owning Real Estate.

So, if you've moved to the big city for a job opportunity, think hard before buying a place. You may be moving sooner than you think, and you could lose your shirt. See also my article "Never Buy a Condominium!" which details the particular pitfalls of that genre.

2. You should put down 10% or preferably 20% as a down payment to secure the best interest rates, avoid mortgage insurance, and insure you are not "upside down" on a loan, should the market go down. You should always seek out a fixed-rate mortgage at the lowest possible rates, even though it requires more documentation and is harder to get.

Leveraged deals are never good deals. If you have bad credit, it doesn't mean you can't borrow money, only that the terms you pay will be onerous. The car dealer who advertises their "bad credit specialists!" is not trying to help you, only themselves.

Large down payments result in lower monthly payments and lower interest rates, as the risk of default is far less. You are better off saving up for a down payment than trying to take advantage of one of these crazy leveraged deals. Or even better off walking away from the idea of home ownership.

Yes, if the market goes up, you can refinance, it is true. But then you incur yet more financing charges and closing fees.

The same is true for variable-rate loans and other exotic financial instruments. Home ownership should be a long-term proposition, so you should be thinking long-term in terms of financing. Getting into a house with a low "teaser" rate is no bargain if a higher rate could later force you into foreclosure.

3. Never buy a house that is beyond your means. A buyer with mortgage payments exceeding 33% of their income is considered "stressed".

Granite counter tops and three-car garages are nice and all, but not necessary to daily living. Most modern homes are designed not for the occupant's physical needs, but for their emotional need to impress people they don't know. The status kitchen and status bath are the norm, these days. Useless whirlpool tubs, for example, are designed to impress those who tour the home, but don't really provide any real value (and waste huge quantities of water). So-called "gourmet" kitchens are often owned by people who microwave all their pre-made meals.

A couple with no children has no real need for a five-bedroom house. But Real Estate agents will always push the idea that you should "buy as much house as you can" to "maximize your interest deduction".

Again, you cannot deduct your way to success. While an interest deduction is a nice thing to have, it does not create wealth. And looking at your home as this mega-investment rather than a place to live is one sure way to get into trouble.

One reason homes in the USA have exploded in terms of size, cost, and amenities, is that people buy things they don't want themselves for "the resale value". So, the theory goes, buy a home with five bedrooms, because someone else might want five bedrooms. But unless you have four children (increasingly rare these days) chances are you don't need all that space. And chances are, there are a lot of other people who don't as well.

Smaller homes can cost less to own, less to maintain, and less to heat and cool. The idea of the smaller home is starting to catch on, but the "buy as much as you can afford" mantra is hard to kill off.

4. When buying investment properties, the cash income from rentals should equal or exceed the cash outlay in mortgage, taxes, insurance and repairs. Assume a 10% vacancy rate.

Do the numbers, as they say. If you don't have a positive cash flow with a rental property, chances are, owning it will make you poor in the short run, as you run out of cash every month trying to "carry" the property. Factor in vacancy so you won't be surprised when a tenant moves out (hint: Make your rents attractive so tenants stay. Higher rents often lead to tenant churn, which negates the increase in income).

I have seen situations where a Real Estate agent will advise an investor to charge maximum rent for a property, and after it sits un-rented for six months, suddenly has a buyer for the now-distressed landlord - at a bargain price, of course.

5. A home is nothing more than a series of components that wear out over time. Each lasts approximately 15 years or so. Budget for repairs of these components and avoid the temptation to replace perfectly good parts to "update" a home when more mundane things will wear out first.

I sold a home to a fellow a few years back. He had rented all his life and had no idea how to even fix a bent paperclip. A year later, there was a puddle of water in the basement and he called me, asking me to "fix the basement".

I was flabbergasted. "I'm not your landlord," I replied, "You own the house now." He protested that he should not have to pay for repairs to his house.

"Well, when I owned it, I put in the new furnace, the new air conditioner, the new hot water heater, the new roof, the new windows, the new wiring, the new kitchen, the new carpet, the new driveway, and the new porch. Guess what? Now it's YOUR turn!"

It turns out he had never cleaned the gutters on the house ("Why do I have to do that?" he asked) and the water poured over the tops and did not drain away from the foundation. The idea that you have to spend a few Fall days on a ladder cleaning out dead leaves was alien to him. After all, at his apartment, the maintenance man did this.

But in addition to basic cleaning and maintenance, a home requires repair over time. Roofs leak, appliances die, furnaces break down. Plumbing bursts, wires fry. It all goes bad over time.

Most components on a home require replacement every 15 years or so. Appliances have a design life of 15 years, so factor that in when buying a home. If all the appliances are 10 years old, figure on buying new ones in a few years. And this is also true for furnaces, hot water heaters, and other built-in machinery. You can nurse along older appliances and fixtures for a few years, if you are handy. But eventually, they all go South and require replacement.

Shingle roofs last 15-20 years and require replacement. Some might go as long as 30 years, but that's not the norm. Floors need to be refinished, carpets get worn. Eventually, the whole house gets replaced over time. It is merely a collection of parts that wear out.

And after 30-50 years, other things wear out. Plumbing goes bad. The main sewer line cracks. Wiring becomes obsolete or hazardous. Foundations settle or leak. As the home owner, you have to fix these things. It is your responsibility.

Many people getting into the home buying game during the bubble didn't understand this, as these were the hard-core renters who jumped on the "home ownership" bandwagon after reading about it in the paper. The failed to budget for repairs, and this came back to haunt them.

Worse yet, many Americans try to "update" a home and replace perfectly good appliances and kitchens (and baths) to "increase value" of the home, while failing to budget for repairs of older items later on. I've seen perfectly serviceable kitchens, maybe 5-10 years old, torn out and discarded because the color of the appliances was not considered "trendy". Later on, when the furnace breaks, the homeowner is broke.

Real Estate Agents love to say things like "You'll get the most bang for your buck in a kitchen or bath remodeling". But what they fail to mention is that what this really means is that for every dollar you spend on these items, you will get the most back (usually 75% or less) compared to say, a den remodeling (30% or less). Like deducting your way to wealth, you cannot remodel your home into a mansion. Remodeling is expensive and the increase to the value of the home is usually less than the costs of remodeling. This has always been true, but in the age of television shows such as "flip this house", a rule that has been forgotten. So forget the "dream kitchen" and focus on doing regular maintenance. Remodel the kitchen when it is worn out - and not before.

And when remodeling, consider carefully before going with "trendy" kitchen and bath designs. In the 1980's the tile counter-top was all the rage. But by the 1990's they looked dated before their time (all that grout!). Similarly today, people are jumping on the "stainless steel appliances" bandwagon, which shows signs of petering out already. A dated-looking kitchen will make your home hard to sell later on and may decrease its resale value. However, a basic kitchen with sound appliances in neutral decor may neutrally affect value, while providing years of reliable service.

Some folks bought new construction, on the premise that if everything was "new" they'd have a few years of "no maintenance". But new homes can have their own special problems - like a new car the first year it is under warranty. Usually the home builder makes repairs if there are problems. But sometimes, they don't. And in the last bubble, many went bankrupt, leaving homeowners with no recourse to chronic repair problems, such as Chinese sheetrock, or defective roofing.

Personally, I'd prefer to buy a house that is a few years old than "brand new". The hassles of home building and the "punch list" are not worth it.

Does Renting Make Sense for You?

I have friends who have rented all their lives. They have moved from apartment to apartment, usually with a fabulous view. They have good incomes and can "afford" to own a home. But they prefer to rent. Why?

Well, for starters, they have no maintenance to deal with. Something breaks? Call the maintenance man. No gutters to clean, no furnace filters to change.

And unlike a Condo, no Condo Board to deal with. The landlord makes the Rules - for everyone - and they are not subject to endless debate. And the rent is set by the market, not based on some deferred maintenance nightmare created by a Condo Board.

They have a smaller space, but enough for themselves to live in. They have a fabulous city view and an indoor place to park their car. No lawn to mow. No gardens to mulch. No tree limbs falling through the roof after a storm. No basement to flood when the power goes off.

Not a bad deal, really.

But what about the rent? The fear many have is that "the rent will go up and up" over time, and that they will be forced out of an apartment. A home sounds like a sure deal - a fixed-cost living arrangement that is also an investment. Neither are necessarily true.

While a fixed-rate mortgage may insure the monthly principle and interest stay the same, there are other factors, such as insurance, maintenance, and especially taxes, that can increase the monthly carrying cost as surely as a rent increase.

The economic meltdown has left States scrambling to balance their budgets. Many States are doing this on the backs of homeowners, by forcing more expenses on the Counties, which in turn increase property taxes.

Property taxes of $3000 a year on a modest house in a modestly taxed State are not unusual. In some States, such as New York or Florida, taxes of $7000 or even $12,000 are not unheard of - for homes that are decidedly "middle class". At the present time, many people are trying to sell such homes in my area, after being socked with tax bills as high as $15,000.

Imagine paying $1200 a month in property taxes. It is not far-fetched. And historically it has been a problem. Most jurisdictions have tried to attack the tax problem by offering discounts for Senior citizens or "homestead" exemptions. The problem has been (and continues to be) that many older folks end up being taxed right out of their homes - often homes that are "paid for" after 30 years of mortgage payments.

So the idea that "owning" a home (remember, you don't really own it outright, you only rent it from the Government!) as a means of having "level" payments over time is flawed. Increases in property taxes and maintenance costs over time will increase the cost of home ownership over time as well.

And the idea that the home will increase in value..... well..... do I even need to address that? If you are lucky, it may go up a few percentage points a year, in a normal market. We are returning to a normal market.

And speaking of market, guess what sets the price of rents? Yup, supply and demand. Contrary to popular belief, rents have not skyrocketed over the years but have remained relatively flat. During the housing bubble, many investors bought properties to speculate - and rented them out. This increased the amount of rental property available and drove down prices. Now that the bubble has burst - well, you guessed it - more properties are going on the rental market. Being a landlord these days sucks. It is a game of margins, and not very good ones, either.

Yes, in some areas and regions, rents can increase dramatically due to certain events. But the renter always has the option of moving to a cheaper area. The homeowner can find themselves stuck in an "upside-down" or unsalable house, if the property taxes shoot up. As a renter, you at least always have the option of moving. The homeowner only has the option of walking away and ruining his credit.

My friends who rent are doing all right. No, they did not make a lot of money during the recent "bubble" - but they didn't lose any, either. They've traveled all over the world and generally enjoy themselves. They've never been "house poor" (and there is no such thing as "apartment poor" when you can move). They can move at the drop of a hat to new places when new opportunities arise.

And a funny thing, too. As renters, they tend to accumulate a lot fewer "things" than home owners do. When you rent, there are fewer places to store "junk" and as a result, you buy less and get rid of more. Home owners with their mini-mansions tend to fill up their three-car garages with boxes of crap.

So many the "Dream of Home Ownership" is not a dream after all. It is just having a place to live - a place that can go down in value, requires a lot of maintenance and upkeep, and can make you "house poor" and keep you tied to one spot.

For many folks, renting just makes sense. Once we strip away all the hoopla about "The Dream of Home Ownership" the reality is just basic dollars and cents. And if we stripped away all the tax incentives, I suspect many more people would choose to rent rather than buy a home.

Friday, September 18, 2009

It's neither fast, nor is it food. And it ain't cheap, despite what you may think.

I stopped going to fast food restaurants several years ago. Actually, I eat out a lot less than I used to. You should too.

Most Americans use restaurants as their kitchens. "Too Busy" with the activities of daily life (including watching Television) they claim to be "too tired" to cook or shop for food, so they go to a restaurant to eat.

Not only is this horribly expensive, it is also horribly bad for you. Most restaurant food tastes "better" than what you make at home, simply because it is filled with fat and salt, and even sugar. Many of my acquaintances eat this way, often evaluating a restaurant not on the quality of the food served or the ambiance, but on the portion size and the price. In short, they view a restaurant as they would view a gas station - as a place to refuel.

And of course, they take home a clam-shell of uneaten food for later consumption as lunch the next day. In this manner, they view the restaurant as a "bargain" as they are getting a perceived "large portion" for a low price, and a second meal to boot.

No matter how you slice it, though, a dollar spent at a restaurant goes a lot further at the local grocery store. Moreover, the food you can prepare yourself is much better for you.

Nowhere is this more true than with fast food.

Many folks argue that fast food is a bargain, and thus not a bad economic proposition. I beg to differ.

A typical meal at a McDonald's, for example, can run anywhere from $5 to $10. This is not cheap. Yes, they offer packaged meals at attractive prices and the "dollar menu" items to get you in. But once inside, most consumers opt to "super-size" their meals, or order multiple "dollar menu" items (two cheeseburgers, a fries, and a coke) and the price of the meal escalates into territory equal to or more than the cost of an entree at a real restaurant.

Yes, for $5 to $10, you can sit down at a diner or lunch place and relax and take your time and have a real plate of food and eat using metal utensils. And chances are, you'll meet the owner of the establishment, not some teen-aged kid working for minimum wage who spits in the food like in the fast-food place.

Or you could have made your lunch at home from food inexpensively bought at the grocery store. Either way, it's cheaper and healthier than "fast food."

"But," you say, "I'm in a hurry! My busy go-go lifestyle doesn't allow me time for a real restaurant meal - or time to prepare a meal at home!"

Wrong again. Have you ever noticed how SLOW fast food has become? In some fast food restaurants, you can end up waiting 10 to 15 minutes for your food. Lines at drive-through windows snake around the parking lot. And in many, there is a "whoops! we screwed up your order!" parking area, where you are directed to "park it" and wait 10 minutes for your fries.

In the old days, you ordered a burger and fries at McDonald's and in less than a minute, your order was filled. Today, in some of these restaurants, it seems the staff has trouble with the simplest things. No one seems to be able to run the register, or make change properly. The food is made at these weird workstations, where workers put things into and take them out of little drawers and "assemble" the sandwiches.

The fryer is so hot and splatters, so no one ever wants to make the fries. As a result, your order is delayed until the game of passive-aggression amongst the staff is played out and someone finally breaks down and drops a basket of fries into the oil. And since they take it out early to serve the increasing number of unhappy waiting customers, you'll end up with those horrible, undercooked fries.

Certain fast-food locations and layouts seem to lend themselves to what we call the "Dis-Feng-Shui" Micky-D's. The smaller locations in particular seem to struggle to get even the simplest things done. Despite a staff of 15, they cannot fill an order in under 15 minutes, and when it is filled, the food is awful - the aforementioned raw fries and sandwich that is sloppily assembled. People wait 15 minutes, pay $8.95 and get dreck. Why on earth do this?

So the idea that you are "saving time" at a fast-food place is no longer valid. It takes longer in many instances to get fast food than it takes to get served at a diner. And if you make your lunch yourself, well, it takes no time at all.

And this brings up a good point. Rushing through meals is never a good idea. As I noted in my "Past, Present, and Future" article, you have to slow down and live for the moment. A meal should be contemplated and enjoyed, not rushed through as yet another task to be checked off in the race toward the grave. Sitting down at a nice restaurant and having a leisurely lunch is better than wolfing down fast food in your car. Sitting under a tree in a park and eating a bag lunch while reading is even better. Slow down and enjoy life.

Too often, I find myself eating while working or while doing something else. Hours later I think to myself, "Gee, I should have some lunch" only to realize that I had it already, and since I didn't take the time to enjoy it, have no recollection of it.

The end of the line for me with fast food was the quality of the product. While traveling by RV, it was comforting sometimes to stop at McDonald's and get a cup of coffee and one of those bagel egg sandwiches. I mean, how bad can that be?

One time, in the Carolinas, I was disgusted to find that some sort of yellow sauce had been slathered all over the sandwich. I nearly barfed. It turned out that they use some sort of yellow butter sauce on the bagels, and that in the past I had never noticed it as they usually only used a small amount. But for some reason, the teenager making the sandwich had erred and slathered the thing in this yellow goo.

It was disgusting, and moreover I realized that it was merely an extreme example of what I had been eating. I paid several dollars for that "meal" only to end up throwing it away. And in the past, similar disappointments had occurred. The fries or hash browns, as noted earlier, would end up either undercooked white blobby masses of potato, or be crusted cold chunks with congealed grease on them. Ray Kroc's early methods to insure reliability and consistency of the product have apparently been sabotaged by the underpaid hourly worker.

I just stopped going, period. It took too long, it cost too much, and the product stank (quite literally). And of course, like most restaurant food, it was not healthy, either.

Of course, this is not to say I never eat out. To me, eating at a restaurant is a social occasion, and sharing food is one of the primary elements of human social interaction. But I do not use restaurants as a substitute for a kitchen. The whole "I'm too tired to cook, let's go out to eat" deal is a non-starter with me.

And of course, when you travel, you have to eat out sometimes. And it is hard to find good food on the road (we travel by RV, so we can make most of what we eat). But when confronted with a choice, I try to pick a real local restaurant over some fast-food place or chain.

Maybe some entrepreneur will rescue fast food from itself and offer healthy food, prepared and served quickly and a reasonable price. But I doubt it. The entire premise of fast food is to appeal to the lowest common denominator and to your basest instincts. They serve salty, fatty, starchy food because it is "yummy" and when you are hungry and you smell those fries, your brain says "Screw the McSalad - get the fries! That's a vegetable!"

Fast Food is like television (and guess who advertises a lot on television? Fast food!). It is hard to control a television watching habit. The average Americans watches 4.8 hours a day. Controlling watching is like controlling a crack habit. It can't be done. Similarly, once you fall into the habit of fast food, it is hard to break. The typical worker in America falls into the habit of "getting a bite to eat" at a fast food chain for lunch, not realizing what a financial and medical problem they are creating for themselves.

The only way is to walk away. I've been Big-Mac-Free for over 5 years now. The gross bagel sandwich made it easy to walk away. And after a year or two, the idea of going back is repulsive. Again, the same is true of television. Once you turn it off, the idea of watching it becomes alien and the desire to do so drops off.

If you need any further convincing, rent the movie "Fast Food Nation". It is a comedy, not a documentary, but kind of insightful, and most of the incidents in the movie are based on real life events.

And if that doesn't convince you, log on to YouTube and look at all the videos of teenagers at fast food restaurants spitting (or worse) in the food. Yes it happens. Letting teenaged kids act as your chef is an idea fraught with peril.

Wednesday, September 16, 2009

Selling off stuff you don't need on eBay or Craigslist is a great way to raise cash and also a way to obtain things you do need instead!

This Spring and Summer, I decided to get rid of a lot of things that were cluttering up my life and sell them on Craigslist and eBay. I had a lot of stuff in closets, barns, attics, spare rooms, and even outdoors that I wasn't using, but was of "value" so I was loathe to part with it.

After a summer of selling, it is time to tally up how much we've made.

The following items were sold on eBay:

1948 Willys Jeep $2000

Coolaroo Awning $50

Excess Coin sets $139.32

Golf Ball Monogrammer: $10

BMW Top Hoist: $50

Used BWM Cooling system parts: $50

Garmin GPS Chip $29.50

Telephone Call Recorders $40

BMW Hitch Plate Cover: $18.51

Powerline Insulator $13.02

Garmin GPS Chip $11.00

Black & Decker Workmate $39.75

Trailer Hitch $25

Cone Air Filter $20

Tractor Weights $10

Broken Radio $20

Another Broken Radio $75

Old Shoe $275

Satellite Modem $50

Solex Carburetor Manual $27.07

Glass powerline insulator $25

TOTAL eBay sales: $2978.17

The following items were sold on Craigslist:

Tractor Wheels: $75Box Blade $300Angle Blade $75Patio Table $40

TOTAL $490

TOTAL ALL SALES: $3468.17

Note that the Patio table was purchased on Craigslist, with four chairs, for $45. We kept the chairs and then sold the table. Four chairs for $5. Not a bad deal.

Now, even taking the Jeep out of the equation, that amounts to nearly $1500 worth of "stuff" I wasn't using that I got rid of. With that money, I was able to pay down debt, and also buy things I needed, like a new video card for my computer and a new axle assembly for my car and a new pump for the hot tub.

Now granted, I probably paid about $150 in commissions to eBay and PayPal, but it was worth it to clean out and clean up.

It is sort of like a game - you can clean out your attic and closets and get rid of "junk" you don't need and then get things you do actually need.

The sale of the Jeep will help pay for remodeling of our basement into a media room. Not only does this get rid of a car we hardly drive, it adds value to the home.

Was it hard to do? Well, it takes a few minutes out of the day to list an item and to pack it. One item, a glass powerline insulator, was smashed in shipment and I refunded the person's money. But that was no big deal, as I didn't pay for it anyway. It was free. I sold others for more money (and packed them better, too!).

Best of all, I got rid of "stuff" while not feeling guilty about "throwing away good things".

And while you might think you would eventually run out of "Stuff" it never ceases to amaze me how I end up finding more things to get rid of. Once you get in the mindset, it becomes a lot easier to say "Gee, I could sell that on eBay!".

While the season winds down here in New York, I already have a list of things to sell next year on eBay. As I plan on selling this house eventually and downsizing, it makes sense to sell off things NOW, rather than wait until we are moving (see my article on Real Estate sales).

Let's see, there's a collection of die cast model cars, a photocopier, an antique clock, some artwork, Kayaks, bicycles, some old car rims, mufflers, what else? Perhaps a couple of cars and an old pickup truck. There's a lot of stuff you accumulate over the decades.

If you aren't using it and haven't used it in a year or more, chances are you won't be using it in the future. Rather than let things get dusty and destroyed, simply sell them and liquidate and move on.

And once you get in the mindset of selling off "junk" it becomes a lot harder to buy more of it - as you tend to view each purchase not merely as an acquisition, but as a process of ownership, with a beginning, a middle, and an end.

When I look at an item to purchase now, I tend to think to myself, "What is the end game on this? How long will I own it? And how will I dispose of it?" In many cases, this line of inquiry results in your not purchasing an item. Once you think about it, you realize that, while some things are "cool" to have, you really won't use them much, and they will just add to the clutter in your life.

Friday, September 4, 2009

One great feature of the Internet is (or was) that it liberated information for use by anyone, anywhere in the world, provided they have a computer.

If you can go online, you can check prices and make informed decisions as a consumer - better informed decisions that you could in the past.

For example, when buying a car, you can do a much better job of price shopping than ever before. Only an idiot would walk into a car dealer these days without knowing what the real price on a vehicle is in advance. And you can research the reliability and resale value of a vehicle as well - far better than you could in the past, when such data was only available in pocket-sized "blue books" that the car dealers had - and you didn't.

And this revolution in data sharing has made it much easier to maintain and keep technology at a much lower cost. If something breaks down, chances are you can go online and find a message or posting from someone having the exact same problem - and possibly fix it yourself for far less money than a mechanic would charge. And you can find replacement parts cheaply online. Or at the very least, you can better educate yourself as to the possible causes and expected repair costs.

In the free market economy, such information is essential. The theory of the free market is that consumers will generally make rational economic decisions and thus the free market will function efficiently. Unfortunately, it seems that even in this digital age, misinformation abounds - and perhaps spreads even faster than before. Warnings about the collapse of the dot.com bubble and the real estate bubble were available online - there for anyone who wanted to read them and for those who knew how to find them. But the huge bulk of irrelevant data shouted down the quiet voices of reason.

Why is this? Well, starters, many financial interests have realized that the free exchange of data does not work in their favor. A car dealer does not benefit from your education about pricing. And a car company does not benefit from your education about resale value and reliability. So there have been strenuous efforts in recent years to "spam" the internet with misinformation and disinformation designed to distract consumers from truth and reality - and to turn consumers into cheerleaders for products and corporations. These Internet users are bootstrapped into being free corporate shills for interests that are often contrary to their own personal interests.

Why is GM in trouble? Not because they have bad products! No, there are a plethora of folks on the Internet who will tell you it is the consumer's fault for not "buying American." Some of these postings might be shills. But many more appear to be sincere postings from people who have taken it upon themselves to be cheerleaders and free spokesmen for a major corporation. A very odd phenomenon.

(And even today, 30 years after GM troubles started, and after the company went belly up and ditched several of its major brands, people are still on various boards, claiming that "but for" people buying those inferior Toyotas, GM would be rockin'! Yea, right.)

It sounds hard to believe, but many people put more faith in brand names than they do in their religion. Look around and see how many folks have turned themselves into walking billboards for various corporations and products. We all do it, to some extent. While driving down the road the other day, I was chagrined to see a cyclist with the AMD logo (a semiconductor manufacturer) plastered on his rear end. Clearly this amateur cyclist was not being sponsored by this chip-maker. Rather, it has been a trend lately for cyclists to mimic their favorite cycling star by donning similar jerseys - complete with corporate "sponsorship" logos.

For many folks, particularly young men, this form of consumerism becomes almost a religion. It doesn't really matter whether the subject matter is cars, boats, bicycles, computers, jet skis, wakeboards, snowboards, snow-skis, or whatever. Having the right "brand" and make product (and often advertising that product) is viewed as the key to happiness and success.

(Note: It is also possible to sucker in older people as well. I subscribe to a magazine for enthusiasts of Mission style and Arts-and-Crafts architecture. It is the same deal, only involving folks who are a little older, with a lot more money to spend. Same idea, though. If only you can buy a craftsman bungalow, spend $700,000 rebuilding and furnishing it, your life will be complete. Sort of ironic, considering how the Arts & Crafts movement began).

Trademarks take on a mystical aura and become like a secret insider's code. You may see a young man's car or truck, plastered with stickers with Trademarks and corporate logos on the back, all of which may mean nothing to you. They look like pagan religious symbols, and to some extant, are. However, to another person steeped in the same hobby, they spell out a map of the purchases or brand loyalties of the driver.

It is interesting to note that to some extent, the Christian movement has taken notice of this and is striking back. In response to the series of "Calvin" stickers sold, showing a bootleg (and poorly drawn) Calvin character urinating on the logo of a competing car brand, many Christian bookstores and outlets offer instead a "Calvin" shown praying before a cross - providing an alternative to brand-worship. It is an astute piece of marketing and also a tacit admission that religions are losing customers to the competing "religion" of consumerism and brand loyalty.

Having worked at or for many of these large corporations, the idea of having consumer "loyalty" to a brand of consumer product seems somewhat odd to me. A corporation is formed to manufacture products for consumers and make a profit. A product should serve its intended purpose, have a reasonable service life, and be competitively priced. Being a "fan" of a manufactured good seems somewhat odd to me. Advertising a product on your person or car or expressing enthusiasm or loyalty for such a product or corporation strikes me as doubly odd. For all the slavish devotion you may make toward Chevrolet or Ford, trust me, they don't feel the same way about you (GM engineers don't drive around with your name plastered on the back of their cars).

No where is this phenomenon more prevalent than the Internet, and its prevalence, I think is carefully nurtured by the companies involved, as mindless cheer leading for a product or service or company is useful in drowning out real critical analysis of a company or product.

In the early days of the (popular use of) the Internet, discussion groups were largely limited to USENET, which were largely public and unregulated forums. You could go online and search for information about a product, and generally get some reasonable information from others. Unfortunately, the unregulated nature of USENET lead to its total spamming, and as a result, much of the traffic for these forums splintered and went to private web-site based forums. Democracy was, in effect, shouted down in favor of the private sector control of debate.

Such website based forums usually had sponsors and were for-profit ventures. So it was not too surprising that in many of these forums, the sponsors are often lauded and their products favorably viewed. Yes, they "shill" the forums with fake messages. Don't act surprised.

Other forums are actually sponsored by the companies involved. Want to discuss problems with your Vonage account? Well, Vonage sponsors the forum. To be fair to Vonage, I found their forum to be pretty even-handed, for the most part, in that they allowed users to air their grievances and say negative things about the company (whose business model, while once a rising star, has been eclipsed by Skype and Magic Jack and a host of copycat competitors. It never pays to be the first in any field, does it?).

But yet another interesting phenomenon started occurring with USENET and the private forums. Many people started visiting these forums regularly, using them as a substitute for regular social interaction. Many articles, books, and even PhD. thesis have been written on this phenomenon and also how group-think affects the operation of such groups. Social pressure - peer pressure - is a phenomenally powerful thing, and marketers are using it to sell products to consumers. Peer recommendation of a product a powerful way of selling (so called "word of mouth") but peer pressure to buy is 10 times as powerful.

The idea that a Wiki (based on a Hawaiian word) or group effort and consensus, will eventually reach the truth of any matter, is a fundamentally flawed idea. Group thinking often results in less than optimal decisions. The Pontiac Aztec was the result of Consumer Focus Group thinking. Nazism was result of the "consensus" of the German people in the 1930's. Group think not only results in less than optimal outputs, it also can result in horribly bad results. Group think gave us the dot.com bubble and the real estate bubble, as well as 8 years of George Bush (or Barack Obama, depending on your political views).

I have visited probably dozens if not hundreds of such enthusiast sites over the years, as they are often a good lead for data for my personal life, as well as research for Patent issues. I have found information on everything from photocopier repair, to vacation recommendations, to car repair, to home buying, to the rules of Farkle. If there is something that more than two people are interested in, chances are, there is a website, blog, discussion group, news group, or other site devoted to that issue.

And on every site, there is sure to be a core group of about 5-10 people who spend a lot of time on that site. And often, many of them consider themselves "experts" on the particular topic, not by means of their background, education, training, or experiences, but rather based on their purchases of products and services from board sponsors or those in the industry.

For example, on any given car site, a typical "hard core" poster will create a "sig" (signature) file with their name, and a list of their cars, as well as the aftermarket parts they have attached to them. Like the window stickers young men put on their vehicles, these lists are like a code to other readers. If you can't decode what it means, relax, you're not supposed to. By using these seemingly mystic lists of Trademarked product names we are enticed into the aura of false expert-ism and also increase the coziness of the group (and increase the us-versus-them mentality).

(It sort of is like the not-too-subtle codes marijuana uses use. "Dude, are you 420 friendly?" they say, as if we didn't all know that "420" was a lame code for pot. It is a way of demarcating who is in the group and who is not).

Surely someone who has put an ACME XF9700e cone air filter on their Chevy S-10 pickup is a true enthusiast, correct? They must be, because they list it on every post. They are one of the mythical few who was able to pull out a credit card, buy the part on the ACME website and then install it according to manufacturer's instructions! Wow, he's an EXPERT.

Incidentally, it is interesting to note how manufacturers are increasingly resorting to code-like names for their products. A combination of letters and numbers is always good, as it sounds technical. Capital X's and Z's are good choices. Adding a lower case "i" or "e" to the end is a bonus. If you use words, the names of vicious animals works well, or something sounding very tough. But conversely, you can change-up by tacking on a silly or ridiculous name as well. By the way, this works well for microbrews, too.

So if you are going to sell some useless piece of chrome add-on to a car, you could call it the "Xtreme Cougar ZX100i" which would work well for selling to insecure young males. But ironically you could also call it the "Bozo Goofus XF500" as a silly name would work as well. I am not sure the "Totally Gay Powderpuff 50" would work, as that might be too far in the reverse macho direction. Regardless, what clearly won't work is a simple, normal name, like the "ACME Air Filter" which certainly wouldn't entice anyone, for its utter lack of code-ability and in-crowd appeal.

Not only will folks buy this stuff, they will go out and buy magazines advertising the stuff - magazines that are little more than bound advertising pages - with even the articles being not-too-subtle shills for the products. The next time you are in the grocery store, take a careful look at the magazine rack and see how many of the magazines are little more than product promotion platforms. If an article is about a person, it acts as an endorsement of the idea that "if only you could buy enough", you might end up happy and complete like the person in the article (and maybe quasi-famous as well!). The person with the ultimate custom car, motor home, dirt bike, computer, BMW, boat, or whatever is profiled as a role model to the reader. Never mind how much money these folks squandered on this stuff, or whether having the "ultimate" whatever really made them happy (Again, see my article on Hobbies and taking them too far).

You can sell anything this way, particularly to young men age 15-35. The Internet bulletin boards are chock full of such folks, proudly declaring their brand loyalties to particular makes and models of cars, boats, computers, motor homes, and their various accessories. They get sucked into this concept that, if only they can buy as many of the add-on parts or toys that the other people in the group have, they too will become "experts" in the group and accepted as well.

And the way these Internet groups are structured, if you do purchase such products, you will be showered with accolades. Many postings on such message boards are along the lines of "Well, I'm finally going to buy an ACME Razor XF900 for my (car, computer, boat)" which is often followed by accolades by others, endorsing the consumers purchase choice as if it were the birth announcement of a child.

On the contrary, you are sure to be ostracized from such groups if you point out that such add-ons or products are not really of any use, or perhaps have an inflated perceived value - or perhaps that they are just THINGS and not an end in and of themselves. The group-think is to BUY MORE, and it seems awfully coincidental to me that the products in these discussion groups that are touted in this manner are often the same products sold by the sponsors. Nothing happens by accident - or very few things do.

I think perhaps that this scenario was not designed by marketers, but perhaps fell into their lap. When companies started getting orders for products and consumers mention "I heard about your product on such-and-such a discussion group" they sat up and took notice. Word of mouth is a powerful marketing tool. If you can co-opt that, you can rule the world.

So subtle shilling began, and it was not hard to do. Young men all-too-willingly sold their souls to corporate interests, plastering logos and product names on themselves and their vehicles, craving acceptance from their peers.

And not surprisingly, counter-shilling began. Different boards competing for the same target audience (Corvette fans, for example) might try to SPAM each other's boards, or create trolling posts, or raise the level of discourse to the point where it is hostile and nearly toxic, hoping to reduce traffic to a competitor's board and increase traffic to theirs.

Lost in all of this was the original idea set forth in the beginning of this article - that the Internet could be a good source for actual opinions from real people - hard and useful data that a consumer could use in making an informed choice in the marketplace.

For a brief period of time, perhaps this free market of ideas flourished, back when the newsgroups of USENET were unmoderated, unspammed and unsponsored. And also back before such discussion groups were reduced to discussions between a dozen "regulars," with the conversations devolving into "Hey, wassup?" and of course, "Attack the new guy!"

I visit (or visited) a number of these forums over the years, and found them less and less useful, and oftentimes only myself publishing any useful information (I try to document simple BMW repairs with photos and instructions, for example, but most other posts on such boards are limited to selling add-on parts). In many cases, however, any question raised in a forum by a "new" person, is often met with scorn and derision, and a host of hasty posts from the "regulars" who want to shout down the new person who invades their space.

In a way, it reminds me of my dog. Today a neighbor's dog visited our yard and our dog went berserk, barking and raising the fur on her entire spine. If she met the dog on neutral territory, she would be fine with it. But this was HER yard, and she had carefully urinated all over it and chased away all the other animals. She didn't want some alien dog nosing in on her territory. In a similar manner, board "regulars" try to chase off any new folks with gruff and abusive responses.

I've seen this again and again on many sites. You post a message asking for help with a problem with your (Car, boat, computer, RV, whatever) and the instant response from the "regulars" is "you're an idiot, you probably caused the problem yourself!" And of course such responses are less than useful.

But what is more disturbing than the lack of Internet etiquette, is how these folks have made product ownership into a false religion. In any forum, there is bound to be one person who considers himself "Mr. (fill in product name)". I've seen it with BMWs, Bayliner Boats, Casita trailers, Fords, Chevies, Computers , Cell Phones, Telecommunications Services, even Fiats. The person devotes their life to this particular manufactured good, making themselves over as a quasi-expert on the good in question based upon their length of ownership, money invested, and time spend on the Internet discussion group. How pathetic can it be to go though life being known as "Mr. Fiat."

(And it seems that companies nurture such folks. I have met more than one "Mr. (fill in the product name) who the company carefully nurtures and encourages, throwing them occasional bits and scraps - just enough to keep their interest. On the Vonage forum site, for example, there are unpaid regulars who patrol the site and promote the service and give advice to folks in trouble - for hours and days at a time. This ends up being a free form of customer service for the company, not a bad deal - for the company that is).

In a way, it reminds me of these mall caricature artists. You've seen them before and maybe you've had your picture drawn. They draw the person with a huge head and a small body. While they are drawing you, they ask you what your hobbies are or what you do for a living or what sports you play. If you say "Well, I play golf occasionally" the resulting portrait will show you, with an enormous head an a tiny body, swinging a tiny golf club while shouldering a bag of clubs, a tiny voice balloon having you yell "Fore!".

Suddenly, based on an offhand comment, this caricature has you pegged as "Mr. Golf" or something. I always am somewhat amused by these portraits, as they usually totally miss the real character of the individual, and moreover tend to over-emphasize one aspect of a person's life as their dominating trait.

(I do play golf, about once a year or so, and on a good day, I am horribly bad at it. When family and friends found out I had "taken up golf," I was flooded with presents, birthday cards, and the like, with golf themes or golf paraphernalia. Suddenly, I was very easy to shop for. Pigeonholing and stereotyping are handy sometimes!)

Perhaps there are people like this, but I am not one of them. Perhaps it is my short attention span, or perhaps it is because I am a dilettante, having interests all over the map. But if a mall caricature artist asked me to pick one thing for my little cartoon body, no one thing I could mention would really fit. And even if one did, I would like to think my life was more than merely a work and hobby choice. I would like to think there is something MORE to life than that.

But for many, I guess, having a single hobby (see my article on Hobbies) is a way of finding an identity, of picking the caricature from the wall of the mall artist, of having an identity to fit in or be pigeonholed. It provides them comfort that they fit in, and perhaps drowns out the background noise in life - the background noise that says "You're going to die soon, and nothing you do will change that." Better to be thinking of a new aluminum anodized widget to bolt on to your jet boat than to think about such things.

Consumerism is a false God. It provides little in the way of succor or relief, it merely drowns out the background noise and prevents one from having to think.

It also is a way of squandering enormous amounts of money. I see this all the time in car forums, where young people flock, wanting to know, right away, what add-on parts they need to bolt onto their car, in order to be accepted by their peers. And you want to have the right parts, too, as anyone who buys the unpopular part will be ridiculed. "Surely, you aren't running a SOLEX carburetor on that car (tee-hee, what a lamer!)"

Consumer products have a use in our life. And yes, they can be enjoyable when you do things with them. Merely owning something is often the least enjoyable aspect. I have a few BMW convertibles. What is fun about them is not merely owning them, but to drive with the top down, on a beautiful warm afternoon, to a picnic or some other fun destination. Doing something is fun. Owning something is often merely a chore. And yet, you'd be surprised by how many people drive around in convertibles with the top up all the time. They want to own a convertible not use it.

So how do you avoid the false God of Consumerism? In the USA, it ain't easy, as we are bombarded with messages every day that tell us to buy more - and that we will never be truly happy unless we get some product being touted. In many cases, they push the idea of ownership in such as way as to get the consumer to believe that their lives will be fundamentally changed forever once they own the product. Yes, it truly is a religion.

Eventually, everyone sours on consumerism. The young male 15-35 eventually grows up, gets married, and realizes in horror how much of the finite amount of money he will make in his life he has squandered on "things." And as you get even older, you realize that owning "things" is little more than a chore - a series of maintenance procedures to fulfill and expenses to pay. And you realize that the "things" in your life are not what make your life fulfilling and complete. And in fact, people who define their lives by their jet boat or their car choice are often sad and unhappy people.

If you can avoid jumping on the bandwagon of consumerism, so much the better. But if you are already on it, the sooner you jump off, the better.

Tuesday, September 1, 2009

A friend of mine made a very good suggestion, that I wished I followed more often. "Every year." he says, "you should shop your cell plan."

This does not mean, necessarily, that you should switch providers, but that you should check to see what bargains are out there.

Cell phones do not have to provide regulated rates like land lines. And the competition among carriers is now fierce. So you can get good bargains by shopping around. Every year, check out competitive prices and plans from different carriers.

And then call your present carrier as ask them to meet or beat it.

I just got off the phone with my cell carrier and they sliced $30 off the plan. I am going to fewer minutes, but when I look at my bill, it is clear I am using fewer minutes than my plan provides. I had over 2800 rollover minutes on my plan, which is nearly enough for four months of service for me.

Not only did they agree to lower my plan rate, they threw in another 2,000 rollover minutes. So even if I end up going over my plan rate, I can probably go for a year or more before I use up these rollover minutes.

So for a 15 minute phone call, I saved nearly $400 a year in cell phone costs. I also took international calling off one phone ($3.95 a month) as we tend to use only one phone for overseas calls. It may not seem like a lot, but it works out to about $50 a year. Every little bit helps.

Initially, we have a very expensive plan with a lot of minutes (1500 a month) as my partner was in Real Estate, which involves a lot of phone calls. But over the years, our usage has dropped to 1000, then 900, then 750, and now averaging 500 or less. There is no sense paying for excess time you are not using.

Another interesting thing has happened as well. We use the phone less than we used to. More and more, people are sending e-mails, particularly if they know you respond to e-mails. E-mails can be responded to on your time, provide a concise written record of what was said, and do not interrupt your day.

In fact, most customers, before they call me, actually e-mail first and say "do you mind if I call you?"

So phone usage in general is dropping off - at least for many people.

For the poor and unsophisticated, however, having a cell phone glued to the ear is de rigeur. It sort of is like smoking - a dirty habit practiced only by the lower classes. You can always spot the serial cell phone user, as they do rude things like take calls in the middle of a conversation with you, or in a restaurant, or in the middle of dinner. It is soooo trashy. If you see someone smoking and on a cell phone, well you can bet they live in a trailer - and not a nice one, either!

And kids, of course, have to have the latest cell phones or texting gadgets, lest they be viewed as "lamers" to their pals. But the same friend who advised me to shop my plan also has a very good hold on kids and cell phones. He uses his son's cell phone as an exercise in learning self-control and responsibility.

Today, there are no pay phones and land lines are even hard to come by. Giving a child a cell phone is a practical solution, not a wild luxury. It is also an opportunity to teach a child responsibility - when are where to use a cell phone, texting and the like, and also limits on minutes used, etc. Since most plans have unlimited minutes between family members (or indeed even between people on the same system) family members can call each other (or message) all they want, at little additional cost.

But beware. Make sure you either disable texting on your phones, or sign up for a plan. You may have read some of the news stories about youngsters texting with a new phone, not realizing that each message costs 50 cents or a dollar, if a plan is not in place ahead of time, only to later end up with a $5000 phone bill.

It is a tough choice for a parent, and I'm glad I don't have to make it. Cell phones and in particular texting, can be very distracting for a child. Texting is akin to passing notes in class, and oftentimes children are texting when they should be paying attention - in class or behind the wheel. But not providing these services with your child's phone (or heaven forbid, not providing them with a phone at all!) could cause them to be ostracized. Again, it is all about teaching limits.

The disposable cell phone is an interesting alternative. But I am not sure it is a worthwhile item, except under certain circumstances. Most cost only a few dollars, and you can buy "minutes" with phone cards. However, if you do not use these minutes, they expire at the end of the monthly or after a certain period. If you do any calling at all, you can expect to use up $25 or more in minutes every month. A regular cell plan could be had for the same amount, albeit not with a lot of minutes on it.

Some have opined that such phones are useful for travellers. For example, if you are travelling to a foreign country, you can pick up a "disposable" cell phone at the airport or any retail store, use it for a week or so, and then toss it. It could be cheaper than trying to enable your domestic phone overseas. Or perhaps not. My present carrier (AT&T) can enable my phone overseas for only a nominal fee. Minutes are pricey, but then again, people at least have my number to dial.

One way to certainly save money is to dump your landline. For young people, this is not even an issue. They go away to college with cell phones, and never get around to installing a land line. They tend to view a land line as an unnecessary and expensive nuisance. Older people have yet to figure this out, relying on both landlines and cell lines, not realizing that the $50 a month they spend on a landline and long distance could pay for 500 minutes (or more) of cell time, including long distance.

Unfortunately, in some locations, the only high speed internet available is DSL, and this requires a landline to be used. However, you can opt for a local landline (no long distance) and then simply not use the landline, or have your cell calls forwarded to the land line (minutes may apply) or use a calling card for the occasional long distance call on the land line.

The main thing to bear in mind is that these are all subscription services and you don't want to succumb to subscription fatigue. What may seem like a trivial expense ("It's only $99 a month!") adds up to a large cash figure over time (thousands of dollars). Throw in all the other subscription services you have (cable, satellite radio, internet service, etc.) and they start to rival a car payment. Thus, it pays to trim subscription services down to the minimum where possible, and keep an eye on them, lest you find out 20 years later than you've squandered thousands on services you never used.

Note that the opposite is also possible. I reduced my cell plan because I had nearly a half year's worth of rollover minutes accumulating. But if you are at or near the limit of your plan and have no rollover minutes, don't make the "dieter's mistake*" and reduce your plan, only to be socked later on with overage charges. While it may be a nice fantasy, it is like a leased car with mileage limits. You cannot simply talk less, in many situations, just as you cannot simply drive less.

My friend's advice was right - shop that plan. I put this off for several months, because I was loathe to call the company and be put on hold and have to deal with the people there. Also, I was loathe to shop the different companies and compare rates, etc,. nor did I want to switch phone numbers.

Eventually, I probably will switch providers, if one can give me a better rate, even if it means switching phone numbers (I have moved to a new area code since I got my phone nearly a decade ago). But until then, it never hurts to shop that plan!

Note that when switching providers, see if you can keep your old phones. Many new plans come with a "free" phone or a phone at a reduced cost. As in my article TANSTAAFL! these "free" phones are hardly free, and in fact the cost is rolled into the monthly service fees. If you can re-use a functional older phone, you may be able to negotiate a discount.

And by the way, the fancier and more expensive phone are usually not worth it, if all you plan on doing is talking on the phone once in a while. We paid extra for a fancy phone, only to discover it was pre-programmed with a menu of pay options (ring tones, texting, etc.) that it steered you to every time you turned it on.

Cell phone insurance is another ripoff. For a couple of dollars a month, they offer to replace your phone if it is damaged or lost. In many cases, these plans only provide you with a "compatible" phone which may be rebuilt, or used. And in most cases, the cost of a new phone is only a couple of hundred dollars at most. If you are careful with your phone, chances are, the "insurance" is a ripoff over time.

We use one cell phone as a land line - tying it into the house wires with a docking station ($89 at most phone stores or online) and using a cell antenna and amplifier to improve signal ($99 online). This way, we can move our "house phone" from place to place, without having to change phone numbers. And it is so much easier talking on a regular phone than on a tiny cell unit (one of my house phones is a 1950's dial phone - tied into my cell phone via the docking station).

The other phone we take while traveling, but rarely use. Again, chatting on the cell phone seems to be a pastime of the poor and uneducated. Most of what transpires over these conversations is trivia and nonsense. Many times we forget to take our cell phone and rarely miss it. It is nice for emergencies and all, but I have no compelling reason to be talking on the phone all the time with people. I guess I'm weird, but if you think about it, that's how we all used to be, before they invented cell phones.

I am not a cell phone guru, so I am sure there are probably other areas where you can save a bundle on your cell plan. If you know of any, I am all ears.

* dieter's mistake - buying clothes a size too small on the premise that "I'll fit into it when I lose weight" and end up selling them in a yard sale for a dollar. The same phenomenon is true with people leasing cars. They see the 10,000 mile per year mileage limit and just think to themselves, "oh well, I'll just drive less," not realizing that their daily commute pretty much dictates the miles they drive.

Having Credit Cards is like trying to keep a pet Velociraptor. You may think of them as pets, but one day they will tear your guts out and eat you alive.

You've heard the phrase "Living Beyond Your Means" many times before. We all like to think we are living within our means, but many of us, at one time or another in our lives, do live beyond our means, and oftentimes, this means that we pay the price later on.

When I was younger, I was much more lackadaisical about money. I made "good" money, or so I thought, so I didn't keep track of it. To me, the ultimate luxury was not having to keep track of money.

Every month, I made all my payments, and if there was anything left over, I spent it. And if I ran out of money, there was always the credit card to use.

In the last two decades, Americans have been spending like drunken sailors and "living beyond their means". What does this mean? Let me explain.

In the typical scenario, Joe and Harriet Consumer do as I did - they get a paycheck and spend it - on cars, meals out, cable TV, and of course a mortgage payment. The balance on their credit card doesn't alarm them, because they can always make the payment. And if they are a week or two late, so what? Darn credit card companies can go sit on a tack!

Besides, the credit card company keeps raising their limit, in letters that say "Congratulations! We've increased your credit line!" When one card gets "full" they take advantage of a "rolloveroffer to move the debt to another, lower interest card. Unfortunately, they keep the old card and run it up again as well.

But one day, Joe and Harriet discover they have $50,000 in credit card debt, spread out over five or six credit cards. No matter what they do, they can barely make the minimum payments and the balance on these cards never seems to go down.

The local bank has an answer. Joe sees an ad on TeeVee for a home equity loan or a refinance. They take equity out of their home to pay off credit card debt. While this is may be a good short-term solution, in reality, it only aggravates the situation. To begin with, the refinancing includes a lot of fees and expenses (often thousands of dollars worth). Second, Joe and Harriet are spending more money they don't really have. Taking equity out of a home is dipping into savings at best, spending phantom equity at worst. Third, now that Joe and Harriet are "out of debt" they congratulate themselves for their financial acumen and start spending on credit cards again. Within a few years, they are back where they started, only worse.

Having Credit Cards is like having pet Velociraptors around the house. They look so cute when they are young and all, and maybe you've raised them from a egg, when they were just $1000 limit cards you got in College. But one day, they grow up into monsters and tear your abdomen out with their claws and feast on your intestines. Yes, credit cards are really that bad.

So how do you avoid "Living Beyond Your Means?" Well, the first step is to closely monitor credit card debt. Even if you can't watch every expense every month and track it in Quickbooks or Quicken or the like, you should pay careful attention to your Credit Card statements and track them over time.

Simply stated, if your credit card balance is increasing over time, then you are "Living Beyond Your Means. You are borrowing money from tomorrow to live today. That is the simple test.

Now in some very special situations, you may need to use credit cards to tide yourself over during a period of unexpected expenses, such a losing a job or a sudden illness. But even then, you should explore alternate means, as that debt can come back to haunt you.

The problem with incurring credit card debt is that if you are late on even one payment, the card companies can jack your rates to 20-30 percent or more, and you will never pay off the balance, due to the high interest payments. If your credit is not stellar, you will find it difficult to borrow at a lower rate to get out from under these loan-shark like terms. For many, the only alternative is bankruptcy.

The Obama administration has promised to curb the abuses of the credit card industry. Guess what? The credit card industry has more power than the Obama administration. So the proposed legislation is shelved, at least for the time being.

So how do you avoid this deadly trap?

First of all, cut up credit cards and get rid of them. At most, you need ONE card, not five or six. NEVER let them raise your limit as a "favor". Get rid of store cards, too.

Second, pick a limit you are comfortable with and stick with it. If they raise it, call them and ask them to lower it again.

Third, use a debit card for purchases where you ordinarily use a credit card. Buying gas and paying cash is a pain. But a debit card makes it easy. Scare stories about debit cards are spread by the credit card industry, which sees them as a threat to their lucrative interest business. (Credit card companies make 2-5% on each purchase, PLUS the interest you pay, PLUS any fees, it is like a license to print money. No wonder they could care less about fraud!)

Fourth, check your bill every month and make sure that the balance is zero, or at least LESS than the previous month's balance. If you balance is INCREASING, sound the alarm and cut back on some expenses. I suggest dumping cable TeeVee, for starters, as it tends to give you a lot of bad ideas about finances.

Fifth, setup your credit card to auto-pay from your checking account every month, the minimum amount due. This way, you will not be late on a payment, triggering a "default" interest rate.

Sixth, if you are carrying a balance, pay more than the monthly minimum (in additional payments) and make a long term plan to pay it OFF completely and keep it that way. Again, cut some other expenses (see my blog here for ideas) and apply the savings to this debt.

For middle-class Americans, it is possible to "Live Beyond Your Means" for decades, and in their 30's and 40's many people do, oblivious to the overall cost of their lifestyle or their simple inattention to financial matters. And once you start living beyond your means (borrowing money) the interest charged compounds the problem, so that you have even less and less money to spend. Pretty soon, you are borrowing more and more and paying most of your income to banks, in the form of interest.

Eventually, however, you will be forced to live within your means. Retirement is a rude awakening for many people, as they realize exactly how much money they squandered over the years, and moreover, how much they will have to cut back in order to survive.

Running out of money before you die is not a pleasant prospect. However, it is the decisions you make NOW, in your 20's, 30's and 40's which determine whether or not this will happen. It rarely is the case that a retiree makes a mistake after retiring that causes them to lose it all.

Put those Velociraptors in a cage - or better yet, just kill them off entirely.